Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A (Sales/Weeks).Group B (Sales/Week).Volume of sales before the 10% discount1.55 million1.50 millionVolume of sales after the 10% discount.1.65 million1.70 million1. Using the midpoint method, calculate the price elasticities of demand for group A and group B.2. Explain how the discount will affect total revenue from each group.3. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?

Answer: (1). Note: discount means the percentage decrease in price. So the percentage decrease in…

Answered: Amazon.com, the online bookseller,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.

	Group A (Sales/Weeks).	Group B (Sales/Week).
Volume of sales before the 10% discount	1.55 million	1.50 million
Volume of sales after the 10% discount.	1.65 million	1.70 million

1. Using the midpoint method, calculate the price elasticities of demand for group A and group B.

2. Explain how the discount will affect total revenue from each group.

3. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?

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